[UPDATED 2024] Free PRMIA 8004 Exam Questions Self-Assess Preparation
8004 Free Sample Questions to Practice One Year Update
NEW QUESTION # 47
Which of the following best characterizes the problems that developed at Bankgesellschaft Berlin?
- A. A company culture where profits may justify "excesses."
- B. Banking is a "for-profit" business, not a means of fulfilling political goals.
- C. Volume growth at the expense of margin.
- D. Excessive reliance on volatile trading income.
Answer: B
NEW QUESTION # 48
Which of the following was NOT a factor in the WorldCom collapse?
- A. Over stating actual sales
- B. Unfair pricing to customers
- C. Accounting abuses
- D. Failed corporate governance
Answer: B
NEW QUESTION # 49
The "Renewing the Dream" program signed into law by President George W Bush in 2002 was designed to
- A. Provide tax credits of nearly US$2.4 billion over the next 5 years to investors and builders who developed affordable single-family housing in poor and distressed areas
- B. Provide grants of US$800 million to help home buyers with down-payment and closing costs
- C. Recapitalise Fannie Mae and Freddie Mac with US$2.4 billion of additional capital to ensure they weathered the risks associated with any future downturn in the housing markets
- D. Allow risky, high-cost loans to be credited towards affordable housing goals
Answer: A
NEW QUESTION # 50
Corporate Governance ...
- A. Is defined as the assembled knowledge and wisdom of the collective stakeholders in the organization, set to maximize shareholder value
- B. Is defined as business decision making predicated on a belief in potential rewards, balanced with the knowledge, understanding and appreciation of the risk taken to pursue those potential rewards
- C. Is defined as that which is best practiced within an enterprise risk management framework, guided by the PRMIA Standards of Best Practice, Conduct and Ethics above all else
- D. Eliminates risk to the greatest extent possible
Answer: B
NEW QUESTION # 51
According to the PwC report China Aviation Oil, in order to avoid recording and reporting losses, the company adopted which approach covering up its losses?
- A. selling short-term options with extremely high-risk profiles to generate premiums to cover the cost of closing out loss-making option positions
- B. selling long-term options with extremely low-risk profiles to generate premiums to cover the cost of closing out loss-making option positions
- C. selling long-term options with extremely high-risk profiles to generate premiums to cover the cost of closing out loss-making option positions
- D. selling short-term options with extremely low-risk profiles to generate premiums to cover the cost of closing out loss-making option positions
Answer: C
NEW QUESTION # 52
Washington Mutual's acquisition of Long Beach Financial changed its business model and increased its credit loss profile because
- A. Long Beach Financial had losses which it hadn't realized at the time of the takeover
- B. the two banks were focussed in different markets
- C. Of a general deterioration of credit quality generally
- D. The resulting loss rate for Washington Mutual was more than 3 times higher than other mortgage lenders tracked by the FDIC
Answer: D
NEW QUESTION # 53
With a PRMIA member's need to reconcile their internal and external responsibility to perform their work in an independent and appropriate fiduciary manner, which of the following options must be taken into consideration when performing risk management duties?
- A. Internal controls, and the expectations of stakeholders, shareholders, and the general public
- B. Internal controls of the organization, and the local regulator
- C. Only the internal controls and compliance standards
- D. The local regulator, internal controls, and shareholders
Answer: A
NEW QUESTION # 54
National Australia Bank and Barings cases are similar in that:
- A. Losses kept increasing while rogue trader(s) hid their positions
- B. The back offices had inadequate procedures
- C. Both A and B
- D. None of the above
Answer: C
NEW QUESTION # 55
What is (are) the lesson(s) of the Barings' failure?
- A. Large profits can be an indicator of risk
- B. Incentive plans have risk management implications
- C. Front and back offices need to be independent
- D. All of the above
Answer: D
NEW QUESTION # 56
Employees shall be remunerated adequately for the roles that they perform, where 'adequately' is defined
- A. using the risk reward profile for each business line in the organization
- B. as commensurate with policies to attract and retain high income / revenue earners
- C. as being the market norm for similarly situated personnel in competitive organizations
- D. using external references and benchmarks, and in a framework which is consistent with the type of risk-taking behavior expected of employees
Answer: D
NEW QUESTION # 57
The problems in the Orange County case can best be characterized as failures related to:
- A. Market Risk
- B. Operational and Regulatory Compliance Risk
- C. All of the Above
- D. Credit Risk
Answer: A
NEW QUESTION # 58
The condition where futures prices of an underlying asset are lower than cash (spot) prices is known as:
- A. Contango
- B. Conchacha
- C. Reverse backwardation
- D. Backwardation
Answer: D
NEW QUESTION # 59
Which of the following regarding Orange County is FALSE?
- A. Bob Citron engaged in risky strategies to benefit personally
- B. Bob Citron heavily leveraged his positions using repos
- C. Citron's losses were eventually exposed by massive margin calls
- D. Bob Citron tried to "ride the yield curve"
Answer: A
NEW QUESTION # 60
Which of the following are PRMIA Governance Principles?
I Sufficiency of Key Resources and Process
II State of the Art Risk Management Technology
III Ongoing Education and Discernment
IV Sufficiency of Key Competencies
- A. I, III and IV only
- B. I, II and IV only
- C. All of these are PRMIA Governance Principles
- D. I and II only
Answer: A
NEW QUESTION # 61
The Q4 2003 trading strategy of China Aviation Oil was
- A. to buy puts and sell calls
- B. to sell calls and buy puts
- C. to sell puts and buy calls
- D. to buy calls and sell puts
Answer: B
NEW QUESTION # 62
The failure of Washington Mutual was NOT due to which one of the following?
- A. Using a combination of subprime mortgage loans and credit cards
- B. A run on its deposits by bank customers
- C. Low lending standards and bad quality acquisitions
- D. It failed due to the poor quality of its assets
Answer: B
NEW QUESTION # 63
Which of the following does NOT relate to the Orange County case?
- A. Strategies that are not possible to explain to third parties should not be employed by the risk averse
- B. Where there are excess rewards, there must be risks
- C. The Know Your Customer rule
- D. Fractured organisational structure and poor risk oversight mechanism make it easy for powerful individuals to hide risk in the gaps
Answer: C
NEW QUESTION # 64
When Fannie Mae and Freddie Mac were taken under US government conservatorship, which of the following was not included within their operating mandate?
- A. There was a 2 year limit to the conservatorship
- B. The US government will buy mortgage-backed securities in the open market as needed
- C. Fannie Mae and Freddie Mac will continue to buy home loans from banks to repackage them as mortgage-backed securities
- D. The US government will provide capital as needed in return for preferred shares in the companies
Answer: A
NEW QUESTION # 65
Which of the following is part of the Group of 30 Report's market risk and stress testing recommendations?
- A. Historic simulations are not effective methods of stress testing
- B. Stress tests should incorporate changes in liquidity
- C. Market risk VaR measures should be multiplied by 3 to get to a stress test figure, as long as the VaR model has been back-tested
- D. To be consistent with regulatory capital measures, 10-day holding periods should be standardized for VaR reporting
Answer: B
NEW QUESTION # 66
The Chair, Vice Chair, Secretary and Treasurer of the PRMIA Board of Directors are elected by:
- A. A two-thirds affirmative vote of all members
- B. The Blue Ribbon Advisory Panel
- C. The Regional Directors
- D. All PRMIA Fellow Members
Answer: C
NEW QUESTION # 67
A risk manager has just completed a risk assessment project. The report has been given to the risk manager's direct supervisor, who refuses to escalate the material issues raised in the report. Further, the direct supervisor edits the report to remove the section describing the material risk, who then submits it to the firm's Executive Committee.
According to the PRMIA Standards of Best Practice, Conduct and Ethics (Code of Conduct), which of the following actions is most appropriate:
- A. The risk manager has submitted the report to their direct supervisor and their obligation ends at this point, nothing further should be done
- B. Escalation of the issue is against the Code of Conduct because one should respect the administrative structure of the organization
- C. The risk manager should attempt to resolve the conflict with the direct supervisor, but if that does not work, they should contact the Whistle-Blowing Hotline of the organization. If no such hot-line is in place, they should contact the PRMIA Ethics Committee
- D. If the risk manager deems it appropriate, he / she should send a copy of the original report to the CEO
Answer: C
NEW QUESTION # 68
When describing the reasons for the collapse of China Aviation Oil, which of the following was not cited?
- A. Time value was not taken into account during the contract valuation process
- B. Loss generating positions were rolled over by selling options on larger positions to generate cash premiums' to settle existing position losses
- C. Senior management in China were aware of the positions but did not understand the complexities of risk managing them
- D. No properly defined risk management policies in place and general lack of oversight by senior management
Answer: C
NEW QUESTION # 69
Which of the following was not cited within the chain of miscalculations and deferred decisions for the downfall of Fannie Mae and Freddie Mac
- A. Lawmakers postponed strenghtening regulatory oversight due to partisan infighting
- B. Extreme exposure to foreign currency exposures and losses from non-US$ mortgages
- C. They did not raise enough capital to weather the storm as the housing slump expanded
- D. Under-management and under-measurement of market and liquidity risk
Answer: B
NEW QUESTION # 70
Finite insurance is reinsurance which
- A. transfers only a limited amount of risk at less cost than traditional reinsurance
- B. transfers the total risk at less cost than traditional reinsurance
- C. transfers only a limited amount of risk at the usual reinsurance price
- D. transfers the total risk at the usual reinsurance price
Answer: A
NEW QUESTION # 71
When considering the performance of Northern Rock within its peer group of banks, which of the following is not correct?
- A. The quality of its' assets was never in question.
- B. For many years it was regarded as a star-performer in the financial markets.
- C. Its' loan loss record was poor by industry standards.
- D. Only a few months previously it had reported record profits.
Answer: C
NEW QUESTION # 72
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